This summer, in Lucero v. Board of Regents of the Univ. of New Mexico, NMHSC, 2012-NMCA-055 (cert. den.), the Court of Appeals concluded that an employee alleging breach of an
employee handbook must exhaust the grievance process outlined in that handbook.
The trial court had essentially denied the employer's motion for summary judgment, reasoning that "Defendant[s'] grievance scheme is ambiguous, and by its own terms does not require Plaintiff to exhaust Defendant[s'] grievance procedure prior to filing suit in court." The trial court found it to be "of great significance" that "within ... Defendant[s'] grievance procedure both 'may' and 'shall' are used," and concluded that exhaustion was "not a condition precedent to Plaintiff filing suit in this court."
The Court of Appeals reversed the district court's denial of Defendants' motion for summary judgment. It is axiomatic that, "[u]nder the exhaustion of administrative remedies doctrine, where relief is available from an administrative agency, the plaintiff is ordinarily required to pursue that avenue of redress before proceeding to the courts; and until that recourse is exhausted, suit is premature and must be dismissed." Id., citing Smith v. City of Santa Fe, 2007-NMSC-055. Moreover, New Mexico court have applied exhaustion principles to employee handbook grievance procedures. See Francis v. Mem'l Gen. Hosp., 104 NM 698 (1986), McDowell v. Napolitano, 119 NM 696 (1995).
In Smith, the Court reasond that "when an implied contract, in this case an employment manual, creates rights, the rights are "limited by the terms of the [employment manual] that gave them birth." In the In McDowell, the Court held that an employee must "substantially comply" with the terms of the employee contract--or handbook--by fallowing the outlined appeals process.
From these cases, the Court in Lucero "glean[ed] the general rule that an employee must substantially comply with mandatory internal grievance procedures contained in an employee manual or handbook before fling suit for breach of contract claims based on an alleged failure of an employer to follow its employment policies." Lucero, ¶ 12.
As to the argument related to permissive language, the Court "read the plain language of Section 61.1 of the employee handbook, using the term 'may,' to be permissive only to the extent that it provides a potential grievant with two options: (1) file a grievance, thereby exhausting the remedies under the employee handbook ... or (2) forego the grievance process and accept the disciplinary decision of the Defendant."
